DIG IN AND TURN IT AROUND

The Bondi terrorist attack has ­focused both the world and Australians on what is really happening Down Under. It is not a pleasant sight, and not surprisingly the previously strong Australian dollar is easing despite looming higher interest rates.

Clearly, the actions of our federal and state politicians have helped create both terror and economic environments that carry great long-term dangers – risks that are masked by the current levels of consumer spending and a revival of business investment. Inflation is rising because of state and federal governments’ overspending, and renewable power costs are skyrocketing. Interest rates must rise.

The renewables mess and the nuclear ban means we may not have reliable and reasonably-priced power (without subsidies) for the artificial intelligence boom and the wider business community. We have abundant gas but have chosen not to develop it, creating shortages and a lack of gas-driven generation capacity.

Longer term, the biggest danger is that although our miners are generating vast amounts of cash they are turning their backs on Australian investment, often because we are no longer competitive with the rest of the world.

But we live in a democracy and history shows that Australians can understand that mining revenue underpins their standard of living, including social welfare payments. They can be severe in the ballot box when they fear a government is endangering that revenue and therefore their standard of living

As I will discuss below, twice in the past half a century – in 1975 and 2018 – government mining policy became an election-deciding issue for an ALP government.

This time around in 2025, suddenly Argentina is replacing Australia as a more stable country in which to make mining investments. The Bondi terror attacks will confirm the miners’ growing global doubts about Australia.

BHP and Rio Tinto have taken up the Argentinian investment invitation and postponed or dropped Australian investment.

In the case of Rio, technology developments also played a big role in choosing Argentina.

In mining, new technology driven by AI research is likely to pay a much bigger role in future investment, which increases the danger for countries such as Australia that do not understand the global competition for capital.

Back in 1975, one of the big issues that enabled Malcolm Fraser to achieve a huge election win after the November 11 dismissal was the so-called “loans affair” where then-energy minister Rex Connor tried to borrow $4bn from dubious sources in the Middle East partly facilitated by the so-called “Carlton dentist”.

Connor’s aim was to fund the acceleration of uranium mining and a pipeline to take West Australian gas to the east coast. In 2013, Tony Abbott defeated Kevin Rudd partly as a result of the ­actions of Rudd and then-treasurer Wayne Swan to introduce a new mining tax.

Now, Energy Minister Chris Bowen is ramming through a high-cost renewable energy scheme that also threatens energy security. At the same time the government’s industrial relations legislation boosts costs, its approval processes are uncertain and the combination of coal royalties imposed by Queensland and events such as the Bondi massacre and politically ignored anti-Semitism add to the unfavourable mix for Australia. Yet there is hope the government will wake up.

Anthony Albanese realised that Jim Chalmers was making a huge mistake with a planned tax on unrealised capital gains and reversed the policy. Intervening in the Bowen energy policies will be much harder, but the Prime Minister is skilled in picking political opinion shifts. Albeit unlikely, it is possible Albanese will repeat the Chalmers reversal in energy.

Although BHP and Rio are making investments to maintain their iron ore positions, both companies illustrate the looming channelling of mining investment out of Australia.

It always seemed incredible that BHP would choose to develop copper high in the low rainfall Andes mountains of Argent-ina and Chile rather than expand-ing its current mines in South Australia. But the Argentinian package was attractive, and in South Australia BHP faced an industrial relations nightmare, high construction costs and an energy situation that was high cost and unreliable. BHP also faced Australian difficulties in obtaining permits that did not exist in investment-hungry Argentina.

At the base of Rio’s decision to abandon most of its hard rock lithium mining in Australia was a preference for direct lithium extraction technology treatment over hard rock sourced and energy intensive lithium production in Australia.

But Rio also took the opportunity to remind Australia of the Argentinian attractions:

“Argentina’s economic reforms and the new Incentive Regime for Large Investments provide a favourable environment for investment, offering benefits such as lower tax rates, accelerated depreciation, and regulatory stability for 30 years, protecting the project from future policy changes, as well as enhanced investor protections.”

The Australian government does not yet understand that attracting mining capital has become very competitive, and we have moved from the top ranks to near the bottom.

Lithium mining is an excellent example of what happens when technology development changes the outlook, particularly in high-cost Australia

About five years ago, hard rock lithium mining was expected to be the next great Australian mining boom as we looked to supply the ballooning demand for lithium for batteries.

But the costs of hard rock mining in Australia, including energy and construction, have made the process higher cost than direct lithium extraction – a process that Rio says supports water conservation, reduces waste and produces lithium carbonate more consistently than other methods.

But Australians can win in mining technology. Australia’s Vulcan Energy used the risk appetite of Australian ASX investors to fund its lithium technology development. It has now raised capital to apply the Vulcan technology to extract lithium from brine waters in ­Germany, assisted by geothermal power. It is now a major European development.

As Vulcan showed, Australian self-managed funds and families are prepared to risk part of their capital in technology innovation.